Can a 700 Foot Oil Window Triple This Company's Output?

Newfield Exploration has found a 700 foot sweet spot in Oklahoma.

How does a company boost output by 250% within just three years? If you asked Newfield Exploration (NYSE:NFX), it would blatantly state the Anadarko Basin. With plans to more than double output this year from the Anadarko Basin, Newfield Exploration is banking on stacked benches.

A 700 foot stackOklahoma is home to the Anadarko Basin, housing the Meramec and Woodford Stack region, which is roughly 700 feet long and full of oil. By testing out the lower part of the Meramec, Newfield Exploration will open up more of the oil column for extraction.

So far Newfield Exploration has tested out the upper part of the Meramec and the Woodford shale and was successful in finding crude. This strongly reinforces the idea that the lower Meramec could also hold significant amounts of oil not being recognized fully on its balance sheet.

Four wells in the Woodford have been brought online, with an average initial production rate of 890 boe/d. In the Meramec, another four wells were brought online with an average production of 1,032 boe/d. Both had a similar oil production mix of ~80%, making additional reserves extremely valuable.

Another part of the 700-foot long oil column is the South Central Oklahoma Oil Province. Wells in the oil window of the SCOOP on average post initial production levels of 1,500 boe/d, with that climbing to 1,900 boe/d in the wet-gas window. The downside to higher production is the oil mix drops to 55% and 30%, respectively, which is compensated by higher NGL, or natural gas liquids, output.

Newfield Exploration is going to spend $700 million, or 44%, of its capital expenditure budget in 2014 developing the Anadarko Basin. The idea is to triple output to roughly 60,000 boe/d by 2016 from 20,000 boe/d currently, making it Newfield's biggest producing asset. This is a strategic shift from previous years when the Uinta basin was Newfield Exploration's primary source of growth.

With 225,000 net acres and an extensive drilling inventory in the Anadarko Basin, Newfield Exploration has a good chance of delivering on its promises and maximizing shareholder value through exploration efforts. If the lower Meramec turns up more crude, then the Anadarko Basin will provide even more production growth than currently predicted. From the first quarter of 2013 to 2016, Newfield Exploration plans to boost output from 50,900 boe/d to 130,000 boe/d, largely on the back of stacked plays in the Anadarko Basin.

Other playsNot to leave out the rest of the leading America oil plays, Newfield Exploration is investing in three other plays with its 2014 budget;

1. $330 million in the Bakken to grow output by 40% to 16,500 boe/d

2. $400 million to grow Uinta Basin production by 5% to 23,500 boe/d

3. $170 million to grow Eagle Ford output by 30% to 11,000 boe/d

This comes as Newfield Exploration doubles output from the Anadarko Basin to 40,000 boe/d this year. Newfield isn't the first to try to tap into a stacked Anadarko Basin play. Apache (NYSE:APA) has successfully tapped into five benches of the basin with great results. From the Granite Wash to the Tonkawa, Apache has big plans to access as much of the recoverable resources as possible.

Proven successApache has spent heavily developing a stacked region nearby with much success. To the west of Newfield's operations, Apache is developing oilfields along the Oklahoma-Texas border in a different part of the Anadarko Basin.

Five major benches are stacked on top of each other with other possibilities to test out. Due to Apache's success in tapping into each bench, management thinks Apache can add ~4 billion barrels of oil equivalent to its reserves from the Central Region. This also conservatively estimates the potential of Apache's Woodford acreage, which still needs to be developed and fully appraised.

In all, Apache sees 11 different plays in the Anadarko Basin with plans to drill into each one. This is why the Central Region makes up half of Apache's potentially recoverable reserves and is a crucial part of the Apache value story. By finding new benches to tap into, Apache thinks it can almost triple its proven reserves from just its shale assets alone.

Foolish conclusionBack a few years ago, it was all about how much acreage you could acquire; now it's about who can make the most of their acreage. Up in the Bakken, players like Continental Resources are testing out the lower rungs over the Three-Forks formation. Down in the Permian Basin, Apache and many others have been trying to develop the Cline Shale (Wolfcamp Part D).

Newfield Exploration is very interested in testing out additional benches in the Anadarko Basin. Due to the success others have had not just in the Anadarko Basin but in shale plays across the country testing out various benches, shareholders should expect Newfield to find large amounts of crude still to be uncovered on its acreage.